City of St. Clair Shores, Michigan

Transcription

1 Comprehensive Annual Financial Report with Supplemental Information Prepared by the Department of Finance for the Fiscal Year Ended June 30, 2012

2 Contents Introductory Section Letter of Transmittal i-vi GFOA Certificate of Achievement vii Map of City with Street Millage Construction viii-ix Organizational Chart x List of Principal Officials xi Fund Organization Chart xii Financial Section Report Letter 1-2 Management's Discussion and Analysis 3-10 Basic Financial Statements Government-wide Financial Statements: Statement of Net Assets 11 Statement of Activities Fund Financial Statements: Governmental Funds: Balance Sheet 14 Reconciliation of the Balance Sheet to the Statement of Net Assets 15 Statement of Revenue, Expenditures, and Changes in Fund Balances 16 Reconciliation of the Statement of Revenue, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 17 Proprietary Funds: Statement of Net Assets 18 Statement of Revenue, Expenses, and Changes in Net Assets 19 Statement of Cash Flows 20-21

3 Contents (Continued) Basic Financial Statements (Continued) Fund Financial Statements (Continued) Fiduciary Funds: Statement of Fiduciary Net Assets 22 Statement of Changes in Fiduciary Net Assets - Pension and Other Employee Benefit Trust Funds 23 Component Units: Statement of Net Assets 24 Statement of Activities Notes to Financial Statements Required Supplemental Information 64 Budgetary Comparison Schedule - General Fund Budgetary Comparison Schedule - Major Special Revenue Funds General Employees' Retirement System Note to Required Supplemental Information 73 Other Supplemental Information 74 Nonmajor Governmental Funds: Combining Balance Sheet Combining Statement of Revenue, Expenditures, and Changes in Fund Balances Budgetary Comparison Internal Service Funds: Combining Statement of Net Assets 95 Combining Statement of Revenue, Expenses, and Changes in Net Assets 96 Combining Statement of Cash Flows 97 Fiduciary Funds: Combining Statement of Fiduciary Net Assets 98 Combining Statement of Changes in Fiduciary Net Assets 99 Schedule of Changes in Assets and Liabilities 100

4 Contents (Continued) Statistical Section Financial Trend Information: Change in Net Assets - Governmental Activities, Business-type Activities, and Primary Government Change in Fund Balance - Governmental Funds Governmental Fund Balance by Designations Government-wide Net Assets by Component Revenue Capacity Information - Taxable Value and Actual Value of Taxable Property Property Tax Rates - Direct and Overlapping Government General Fund Revenue from the State of Michigan 116 Property Tax Levy and Collections 117 Principal Taxpayers 118 Debt Capacity Information: Pledged Revenue Coverage Ratio of Outstanding Debt Ratio of General Bonded Debt Outstanding Computation of Direct and Overlapping Debt 125 Computation of Legal Debt Margin Demographic and Economic Information - Demographic and Economic Statistics 128 Principal Employers 129 Operating Information: Full-time Equivalent Government Employees Operating Indicators Capital Asset Statistics Continuing Disclosure Items 140 State Equalized Valuation and Taxable Valuation 141 Breakdown of Current Taxable Valuation 142 Tax Rate Limitations 143 Population 144 Receipts of Gas and Weight Taxes 145 Debt Statement 146 Revenue-sharing Payments from the State of Michigan - General, Special Revenue, and Debt Service Funds 147 Water Sold vs. Water Purchased 148 Water Customers and Consumption 149 History of Utility Rates Sewer Rates - Commercial and Industrial Users 152 History of Residential Water and Sewer Rate Increases 153 Ten Largest Water and Sewer Customers 154

5 Contents (Continued) Continuing Disclosure Items (Continued) Historical Net Earnings, Cash Flow, and Debt Service Coverage - Utility Fund 155 Schedule of Bond Maturities 156 General Fund - Fund Balance 157

6 Mayor Kip C. Walby Mayor Pro-Tem Peter A. Rubino Acting City Manager Michael E. Smith Director of Finance / Treasurer Timothy P. Haney November 19, 2012 City of St. Clair Shores Jefferson Circle Drive St. Clair Shores, MI Phone: (586) Fax: (586) Council Members: John D. Caron Ronald J. Frederick Candice B. Rusie Anthony G.Tiseo Chris M. Vitale To the Honorable Mayor, Members of City Council, and Citizens of St. Clair Shores: The Comprehensive Annual Financial Report (CAFR) of the City of St. Clair Shores (the City ) for the year ended June 30, 2012 is hereby submitted. The basic financial statements as defined in the table of contents were audited by Plante & Moran, PLLC, certified public accountants. Their unqualified opinion follows this letter of transmittal. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with City management. To the best of our knowledge and belief, the enclosed data are accurate in all material respects and are reported in a manner that presents fairly the financial position and results of operations of the governmental activities, business-type activities, the various funds and component units of the City of St. Clair Shores. All disclosures necessary to enable the reader to gain an understanding of the City of St. Clair Shores activities have been included. The Comprehensive Annual Financial Report is presented in four sections: Introductory, Financial, Statistical and Continuing Disclosure. The introductory section, which is unaudited, includes this letter of transmittal, an organizational chart and a list of the City of St. Clair Shores' principal appointed officials. The financial section includes: the management s discussion and analysis (MD&A); the basic financial statements, which are comprised of the entity-wide financial statements, fund financial statements, notes and schedules, as well as the independent auditor's report on these financial statements and schedules; and the required and other supplemental information on the budgetary comparison schedules, pension plans and combining financial statements for nonmajor funds. The statistical section, also unaudited, includes selected financial and demographic information, generally presented on a multi-year basis. Finally, the unaudited continuing disclosure section contains information required by the Securities and Exchange Commission Rule 15c2-12 requiring that issuers of municipal securities undertake in a written contract for the benefit of the holders of such securities to provide certain annual financial information to various information repositories. Accounting principles generally accepted in the United States of America require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of management s discussion and analysis. This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The City of St. Clair Shores MD&A can be found immediately following the report of the independent auditor. City of Lights, St. Clair Shores, Michigan i

7 The Reporting Entity and Services Provided The City of St. Clair Shores has defined its financial reporting entity in accordance with the pronouncements of the Governmental Accounting Standards Board (GASB). The City of St. Clair Shores includes all the funds, agencies, boards, commissions, and authorities that are controlled by or dependent on the mayor and City Council. Based upon these criteria, the Economic Development Corporation, the Tax Increment Finance Authority, the Brownfield Redevelopment Authority and the Corridor Improvement Authority have been included in this report. The City of St. Clair Shores provides a full range of services including police and fire protection; sanitation services; construction and maintenance of highways, streets and infrastructure; planning and zoning; library services, recreational activities; and cultural events. Additionally, water and sewer services are provided under an Enterprise Fund concept, with user charges set by the City Council to ensure adequate coverage of operating expenses and payments on outstanding debt. Accounting Systems, Budgetary and Internal Controls The City s accounting system is organized and operated on a fund basis. Each fund is a distinct, self-balancing entity created to account for all assets, liabilities, financial resources and uses associated with its intended purpose. Annual balanced budgets are adopted for all the primary government s General, Special Revenue, and Debt Service Funds as required by Michigan Public Act 621 of 1978, the Uniform Budgeting and Accounting Act. The City Council, by resolution, adopted a budget on a budgetary center basis for all departments, divisions, boards, commissions and other activities. Budgets for the General, Special Revenue, and Debt Service Funds were adopted on the modified accrual basis of accounting consistent with generally accepted accounting principles. In developing and evaluating the City s accounting system, consideration is given to the adequacy of internal controls. Internal control represents the organization s plan of procedures associated with safeguarding assets and maintaining the integrity of financial records, and consequently is designed to provide reasonable assurance that: Transactions are executed in accordance with management s general or specific authorization. Transactions are recorded as necessary (1) to permit preparation of financial statements in conformity with generally accepted accounting principles, or any other criteria, such as finance-related legal and contractual compliance requirements applicable to such statements, and (2) to maintain accountability for assets. Access to assets is permitted only in accordance with management s authorization. The recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. City of Lights, St. Clair Shores, Michigan ii

8 We believe that the City s internal accounting controls adequately safeguard assets and provide reasonable assurance of proper recording of financial transactions. Local Economy and Governmental Structure The City of St. Clair Shores is located in the southeast corner of Macomb County, north of the City of Detroit, in southeastern Michigan on Lake St. Clair. The City contains approximately 11.6 square miles with a population of 59,715 citizens as reported by the U.S. Bureau of the Census for calendar year As of June 2012, the City currently has a 10.6 percent unemployment rate as compared to a statewide rate of 8.6 percent and a national average of 8.2 percent. Incorporated in 1951, the City operates under a council/manager form of government. Voters elect a mayor and a six-member council in staggered four-year terms. The mayor and council are the legislative body of the City, responsible for adoption and implementation of ordinances, policies, budget guidelines and upholding the Charter. The City manager administers the dayto-day operations of the City and makes recommendations to City Council. The City of St. Clair Shores has grown over the years to a point where less than 1 percent of its total land area is vacant. Most recent growth taking place in Macomb County occurred to the northwest; the I-696 and I-94 freeways running though St. Clair Shores provide a corridor of opportunity for redevelopment and enhancement of existing development. There is no question the future years will be challenging as expenditure increases are expected to continue to exceed revenues. The five-year economic projection (prior to incorporating the results of current year operations) shows revenue relatively flat until 2015 when the police and fire operating millage expires while expenditures will increase at 2 percent to 7 percent unless changes are made. It is management s goal to maintain high quality services during times of economic uncertainty. The City has adopted prudent and conservative financial policies, which will help guide us through the upcoming years. Therefore, management and council have amassed an undesignated fund balance of $13.3 million or 35 percent of expenditures. The five-year financial projection indicates that fund balance will be reduced to unacceptable levels if proactive steps are not made to increase revenue or reduce expenditures before On November 2, 2010, a local millage of 2 mills to support police and fire services was successfully approved. This funding secures the staffing levels at 90 for the police department and 50 for the fire department. This millage expires June 30, Long-term Financial Planning The City has relied on its five-year financial model since 1996 to help make long-term plans. The model enables administration to project fund balance given various assumptions based on the economy and changes in major revenue and expenditure items. This model justified the downsizing of the workforce over 22 percent since fiscal year Through conservative budgeting and the revenue from the police and fire operating millage, the model projects that we can continue to balance the budgets through fiscal year City of Lights, St. Clair Shores, Michigan iii

9 Relevant Financial Policies The City relies on long-term financial planning to help make short-term decisions as to one-time revenue or expenditures. The model projects a structural deficit that would quickly use up fund balance if no changes are made. All positions becoming vacant are evaluated to determine the need to fill. A new ballot proposal, by citizen referendum, at the millage rate of 2 mills was approved at the November 2, 2010 election. The ballot proposal is for three years ending June 30, 2014 and guarantees the current staffing levels of 50 fire and 90 police positions. Major Initiatives The following were among the many activities and accomplishments to which both the elected officials and staff devoted their energies in fiscal year : 1) Conservative budgeting practices continued throughout the year. The fund balance stands at $13.4 million. 2) All staff positions continue to be evaluated when they become open. 3) The residential street millage program continued for the sixteenth year in a row. To date we have collected $26,820,168 and expended $25,966,657 as detailed on the maps following this letter. The balance of $853,511 is reserved for qualifying expenditures in the following year. The millage expires with the July 1, 2014 levy for the fiscal year ending June 30, ) St. Clair Shores voters approved a tax levy of up to 2 mills to finance federal and state mandated improvements on the Jefferson Interceptor and repairs to sanitary sewers citywide in September dubbed the Lake St. Clair Clean Water Initiative Project. Construction of improvements for this massive infrastructure project continued this fiscal year. To date, all of the residential sanitary sewers have been televised and repairs and improvements are ongoing under this project. The residential sewers repaired at the beginning of this undertaking are now being cleaned and televised again to see that the repairs are holding up properly. 5) An active blight program aimed at maintaining property values continues to be a successful project citywide. 6) Police and fire operations represent about 56 percent of the City s general operating budget. Both police and fire departments continue to operate effectively with 31,384 and 7,886 incident responses, respectively. 7) The recreational opportunities at this City s disposal rival any community in southeast Michigan. Volunteers should be credited with much of the success of these operations; over 741 coaches participated in baseball, soccer, basketball, and skating associations. The civic ice arenas are utilized regularly by over 1,365 skating club members in addition to the 5,849 open skating and shift hockey participants. The St. Clair Shores Golf Course and Country Club had 45,093 rounds of golf. City of Lights, St. Clair Shores, Michigan iv

10 Some of the Major Initiatives for July 1, 2012 and thereafter are as follows: 1) The sewer repair and construction necessary under the Clean Water Initiative continue. 2) The Community Development Department continues to implement the Harper Avenue Revitalization Plan. 3) We continue to monitor the water loss in the Utility Fund. Water loss has returned to its long-term average of 16 percent. Staff continues to take proactive steps to keep the water loss low. 4) We have eliminated 73 positions in the last number of years and almost all capital spending. The slowdown in the economy and the problems the State of Michigan is having balancing its own budget will seriously affect future budgets. The value of the 73 positions eliminated exceeds $7.4 million per year. 5) Statutory state-shared revenue has changed. A new program called the Economic Vitality Incentive Program has taken its place. The program has three criteria that have to be met. An economic dashboard has been made available to the public through our website. Consolidation of services internally or externally needs to be attempted. Cost-sharing or cost reductions of health insurance have to be made with employees. The City intends to meet all criteria when due. 6) On November 1, 2012, the city manager resigned. The assistant city manager, Michael E Smith, has been appointed acting city manager and a search for a new city manager has commenced. Awards For the seventeenth year in a row, the Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of St. Clair Shores for its comprehensive annual financial report (CAFR) for the fiscal year ended June 30, The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for preparation of state and local government financial reports. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report, whose contents conform to program standards. Such CAFRs must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. The City of St. Clair Shores has received a Certificate of Achievement for the last 16 consecutive years. We believe our current report continues to conform to the Certificate of Achievement program requirements, and we are submitting it to GFOA. City of Lights, St. Clair Shores, Michigan v

11 Acknowledgments The preparation of the comprehensive annual financial report on a timely basis was made possible by the dedicated service of the entire staff of the Department of Finance and our independent auditors, Plante & Moran, PLLC, CPAs. Each of them has our sincere thanks. In closing, without the leadership and support of the mayor and City Council, preparation of this report would not have been possible. Sincerely, Michael E. Smith Acting City Manager Timothy P. Haney Director of Finance and City Treasurer City of Lights, St. Clair Shores, Michigan vi

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16 List of Principal Officials June 30, 2012 City Manager Benjamin M. Hughes, City Manager Michael E. Smith, Assistant City Manager/Human Resource Director Robert Ihrie, City Attorney City Clerk Mary A. Kotowski, City Clerk Community Development Christopher R. Rayes, Director of Community Services Elizabeth M. Koto, City Planner District Court Carolyn Povich, Court Administrator Department of Public Works Bryan Babcock, DPW/Water Director Finance Timothy P. Haney, Director of Finance/Treasurer Lawrence P. Claeson, Controller/Deputy Treasurer Susan Kroening, Assistant Controller Teri Socia, City Assessor Fire George W. Morehouse, Fire Chief Information Systems Gregory N. Corless, Information Systems Administrator Library and Information Services Rosemary Orlando, Library Director Sue Ann Mihalic, Assistant Library Director Mary Jane D Herde, Communications Director Parks and Recreation Gregory R. Esler, Parks and Recreation Director Timothy J. Dorner, Golf Course Superintendent Police Michael E. Walleman, Police Chief Glenn A. Bowlin, Deputy Police Chief xi

17 Fund Organization Chart General Special Revenue General Fund Library State Aid Library Penal Major Streets Local Streets Court Building Drug Law Enforcement Community Development Block Grant (CDBG) Family Rental Program Neighborhood Stabilization Program Energy Efficiency & Conservation Block Grant HUD Home Program Debt Service Capital Projects Debt Service SEMSD Clean Water Initiative Building Authority Harper Avenue Streetscape 1994 MVH Debt Retirement 2011 Capital Improvement SEMSD Clean Water Initiative Golf Course Capital Project Relief Drain Debt 2011 Capital Improvement Debt Service Enterprise Proprietary Funds Internal Service Recreational Revenue Utility Motorpool Computer Replacement Pension Trust General Employees' Retirement System Police and Fire Retirement System Other Employee Benefit Trust Funds Police and Fire Retiree Health Care General Employees' Retiree Health Care Fiduciary Funds General Agency Tax Collections Agency Component Units Economic Development Corporation (EDC) Tax Increment Finance Authority (TIFA) Brownfield Redevelopment Authority (BRA) Corridor Improvement Authority (CIA) xii

18 Independent Auditor's Report To the Honorable Mayor and Members of the City Council We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the (the "City") as of and for the year ended June 30, 2012, which collectively comprise the City s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of St. Clair Shores, Michigan s management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The activities of the 40th District Court were not audited in accordance with Government Auditing Standards. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the as of June 30, 2012 and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the 's basic financial statements. Accounting principles generally accepted in the United States of America require that management's discussion and analysis, retirement systems and healthcare plans schedules of funding progress and employer contributions, and the budgetary comparison schedules for the General Fund and each major special revenue fund, on pages 65-68, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, which considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the management's discussion and analysis and the retirement system and healthcare plans schedules of funding progress in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 1

19 To the Honorable Mayor and Members of the City Council The other budgetary comparison schedules and combining statements, as identified in the table of contents as other supplemental information, are presented for the purpose of additional analysis and are not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. These schedules, along with the budgetary comparison schedules for the General Fund and each major special revenue fund on pages 65-68, have been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. The introductory section and statistical section, as identified in the table of contents, are presented for the purpose of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. In accordance with Government Auditing Standards, we have also issued our report dated November 19, 2012 on our consideration of the 's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide opinions on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. November 19,

20 Management s Discussion and Analysis Overview of the Financial Statements Our discussion and analysis of the City of St. Clair Shores (the City ) financial performance provides an overview of the City s financial activities for the fiscal year ended June 30, Please read it in conjunction with the transmittal letter on pages i-vi and the City s financial statements which begin on page 11. Financial Highlights The City s overall net assets increased $0.4 million or 0.2 percent as a result of this year s operations. Net assets of our governmental activities decreased $3.3 million or 3.1 percent; net assets of our business-type activities increased $3.7 million or 5.4 percent. The decrease in governmental activities and increase in business-type activities represents a transfer of property taxes collected to pay debt service. The General Fund reported revenue in excess of expenditures and transfers of $1.8 million. General Fund revenue was in excess of the budget by $0.7 million while expenditures were $3.7 million less than budgeted. Government-wide Statements The government-wide statements report information about the City as a whole using accounting methods similar to those used by private sector companies. The statement of net assets includes all of the government s assets and liabilities. All of the current year s revenue and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two government-wide statements report the City s net assets and how they have changed. Net assets, the difference between the City s assets and liabilities, are one way to measure the City s financial health. The government-wide financial statements of the City are divided into three categories: Government Activities - Most of the City s basic services are included here such as the police, fire, public works and parks departments, and general administration. Property taxes, state-shared revenue, charges for services, and grants provide most of the funding. Business-type Activities - The City charges fees to customers to cover costs of providing water and sewer services. Component Units - The City includes four other entities in its report, the Economic Development Corporation, the Tax Increment Finance Authority, the Brownfield Redevelopment Authority, and the Corridor Improvement Authority. Although legally separate, these component units are important because the City exercises control over them. 3

21 Management s Discussion and Analysis (Continued) The City as a Whole The City s combined net assets are $179.2 million at June 30, Business-type activities make up $71.9 million and governmental activities make up $107.3 million. Combined revenues are $71.8 million. Revenue from governmental-type activities make up $52.6 million and business-type activities are $19.2 million. The tables below show a comparison of the current year to last year. Note that certain amounts within the 2011 column have been reclassified to conform with the 2012 presentation. Net Assets (in millions) Governmental Activities Business-type Activities Total (as restated) (as restated) Assets Current and other assets $ 49.7 $ 49.0 $ 38.5 $ 30.9 $ 88.2 $ 79.9 Capital assets Total assets Liabilities Long-term liabilities outstanding Other liabilities Total liabilities Net Assets Invested in capital assets - Net of related debt Restricted Unrestricted Total net assets $ $ $ 71.9 $ 68.2 $ $ Net assets of the City s governmental activities decreased by 3.1 percent to $107.3 million at June 30, 2012 compared to $110.7 million at June 30, This decrease was due to a transfer of property taxes collected to the business-type activity to pay debt service. Unrestricted net assets - the part of net assets that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation, or other legal requirements - are $10.4 million at June 30, Net assets of the City s business-type activity increased $3.7 million, reflecting the transfer from governmental activities as mentioned above. 4

22 Management s Discussion and Analysis (Continued) Changes in Net Assets (in millions) Governmental Activities (as restated) Business-type Activities (as restated) Revenue Program revenue: Charges for services $ 9.1 $ 8.7 $ 19.1 $ 18.7 $ 28.2 $ 27.4 Operating grants and contributions Capital grants and contributions General revenue: Property taxes Unrestricted state-shared revenue Unrestricted investment earnings Cable franchise fees Other Total revenue Expenses General government Public safety Public works Community and economic development Recreation and culture Interest on long-term debt Water and sewer Total expenses Income (Loss) - Before transfers (0.1) Special Item - Return of program income (0.4) (0.4) - Transfers (3.0) (3.6) (Decrease) Increase in Net Assets (3.4) (2.0) Net Assets - Beginning of year Net Assets - End of year $ $ $ 71.9 $ 68.2 $ $ Total 5

23 General government Public safety Public works Community and economic development Recreation and culture Interest on long-term debt Management s Discussion and Analysis (Continued) Governmental Activities Revenues for the City s governmental activities totaled $52.6 million in Property taxes were 57 percent or $30.1 million. Property taxes are down 2.6 percent from last year, reflecting a decrease in property values of 9.2 percent and offset by millage increases of 7.2 percent. The majority of the millage increase was for voted millages supporting police and fire personnel and retirement costs. Charges for service totaling $9.1 million or 17 percent of total revenue support programs such as building inspections, recreation, etc. These charges were approximately the same as the prior year. Unrestricted state-shared revenue of $4.9 million remained the same as last year. Expenses in total increased $0.5 million. All governmental programs rely on property taxes and state-shared revenue except for community and economic development, which relies on Community Development Block Grant funding to cover expenses. $25,000,000 Expenses and Program Revenue Governmental Activities $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 Revenue Expenses 6

24 Management s Discussion and Analysis (Continued) Revenue by Source Governmental Activities State-shared revenue 9% Other revenue 2% Charges for service 17% Operating grants and contributions 10% Property taxes 59% Capital grants and contributions 3% Business-type Activities The water and sewer operations are funded primarily by user fees or charges for service which make up 99.3 percent of revenue. $19,200,000 Program Revenue and Expenses Business-type Activities $19,000,000 $18,800,000 $18,600,000 $18,400,000 $18,200,000 $18,000,000 Program revenue Expenses The City has one business-type activity: the water and sewer system. Revenue of the City s Utility Fund and transfers in totaled $22.2 million in 2012 and expenses were $18.5 million. The Utility Fund experienced an increase in net assets of approximately $3.7 million. 7

25 Management s Discussion and Analysis (Continued) Charges for service reflect an 8.8 percent decrease in water units sold. The cost of water and sewer service went down accordingly. Water rates were increased from $26.55 per 1,000 cubic feet to $30.84 per 1,000 cubic feet. This increase reflected the increase in the price to purchase water from the City of Detroit. Sewer rates increased from $40.68 to $46.27, reflecting increased cost from the Southeast Macomb Sanitary District. The volume of water purchased and sold was above budget. Capital Assets (in millions) Governmental Activities Business-type Activities Total Land $ 10.2 $ 10.2 $ - $ - $ 10.2 $ 10.2 Building and improvements County drains Improvements other than buildings Furniture, fixtures, and equipment Water and sewer distribution systems Vehicles Infrastructure Construction in progress Total $ $ $ $ $ $ Capital assets related to governmental activities increased by $4.2 million, reflecting continuing investment in streets and right of way (infrastructure). See Note 5 to the financial statements for additional information. Fund Financial Statements The fund financial statements provide more detailed information about the City s most significant funds, not the City as a whole. Funds are accounting tools that the City uses to keep track of specific sources of funding and spending for particular purposes. Some funds are required by state law or bond covenants. The City Council also establishes other funds to control and manage money for particular purposes. The City has three kinds of funds: Governmental Funds - Most of the City s basic services are included in governmental funds, which focus on how cash and other financial assets that can be converted to cash flow in and out, and the balance left at year end that is available for spending. The governmental fund statements provide a detailed short-term view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the City s programs. 8

26 Management s Discussion and Analysis (Continued) Proprietary Funds - Services to which the City charges customers a fee are generally reported in proprietary funds. Proprietary fund reporting, like government-wide statements, provide both short- and long-term financial information. Fiduciary Funds - The City is responsible for ensuring that the assets in these funds are used for their intended purposes. We exclude these activities from the government-wide financial statements because the City cannot use these assets to finance its operations. The fund financial statements begin on page 14 and provide detailed information on the most significant funds - not the City as a whole. The City Council creates funds to help manage money for special purposes, as well as to show accountability for certain activities, such as special property tax millages. The City s major funds for 2012 include the General Fund, the Major and Local Streets Funds, and the SEMSD Clean Water Initiative Debt Service Fund. The major components of revenue in these funds are property taxes and state sources. The major components of expenditures in these funds are public safety (police and fire) and public works. There was an excess of revenues and other financing sources over expenditures in these funds of $2.5 million. Unassigned fund balance is $13.3 million. The Major Street Fund increased $0.7 million. The Local Street Fund increased approximately $0.3 million. The SEMSD Clean Water Initiative Debt Service Fund decreased approximately $0.3 million to pay debt service. General Fund Budgetary Highlights Actual revenues were within 1.6 percent of the final budget. Expenditures were $3.7 million or 8.3 percent less than the budget, representing conservative budgeting practices along with keeping vacated positions open while evaluating the need to fill them. Changes were made during the year, increasing budgeted revenue from state-shared revenue and grants reflecting anticipated grant and revenue-sharing increases. Charges to other funds and transfers increased, representing corresponding cost increases passed through. Budgeted expenditures were increased during the year to reflect projects funded in previous years that were not started or completed in prior years. Almost all departments were under the final budget, allowing us to again build up fund balance to help with anticipated shortfalls in future years. The City is intentionally building fund balance when it can because structurally its budget is in a deficit. Department heads are requested to spend only the amount needed to operate. All departments have responded favorably. 9

27 Management s Discussion and Analysis (Continued) Current Economic Conditions The City continues to balance its budget; however, structurally there is a funding problem for established communities in Michigan. The three major funding sources for cities are property taxes, state-shared revenue, and fees and charges. All three revenue sources are subject to limitations that over the last few years and for the foreseeable future will prevent them from increasing at the rate of inflation. Expenses on the other hand are rising faster than inflation in many areas such as health care, energy costs, etc. This has resulted in a reduction in personnel (73 since 2002) in order to balance the budget. The City government is a service to the City residents and therefore its primary costs are personnel related. Through the use of long-term planning, the City will continue to balance its budget. On November 2, 2010, the voters of the City approved a millage of 2.0 mills for three years commencing on July 1, 2011 for police and fire operations. The millage guarantees staffing at 90 personnel for the police department and 50 personnel for the fire department. The City relies on this additional millage to help balance its budget. Contacting the City s Financial Management This financial report is designed to provide our citizens, taxpayers, customers, investors, and creditors with a general overview of the City s finances and to show the City s accountability for the money it receives. If you have questions about this report or need additional financial information, contact Timothy Haney, Director of Finance/Treasurer, at the City of St. Clair Shores, Jefferson Circle Drive, St. Clair Shores, MI

28 Statement of Net Assets June 30, 2012 Governmental Activities Primary Government Business-type Activities Total Component Units Assets Cash and investments (Note 3) $ 40,662,840 $ 10,799,624 $ 51,462,464 $ 945,108 Receivables - Net: Property taxes receivable 165, ,212 - Receivables from sales to customers on account 9,718 6,961,185 6,970,903 - Accrued interest receivable 60,438 25,796 86,234 - Other 888, ,886 1,121,140 - Due from other governmental units 2,087,214-2,087,214 - Special assessments 146, ,272 - Due from component units 28,333-28,333 - Internal balances (693,001) 693, Inventory - 224, ,764 - Prepaid expenses and other assets 746,521 7, ,702 - Restricted assets (Note 7) 3,450,981 11,642,735 15,093,716 - Investment in joint ventures (Note 13) 1,936,422 7,927,845 9,864,267 - Assets held for resale 249, ,311 - Capital assets (Note 5): Assets not subject to depreciation 12,807, ,501 12,977,261 - Assets subject to depreciation 71,748,416 77,935, ,684,277 - Total assets 134,294, ,620, ,915, ,108 Liabilities Accounts payable 1,733,332 1,841,320 3,574,652 22,811 Due to other governmental units 949,575 96,632 1,046,207 - Due to primary government ,333 Accrued and other liabilities 2,354, ,542 2,910,200 - Unearned revenue (Note 8) 95,552-95,552 - Noncurrent liabilities: Due within one year (Note 6) 2,264,194 2,404,262 4,668,456 - Due in more than one year: Net OPEB obligation (Note 10) 5,220, ,074 5,551,398 - Long-term debt (Note 6) 14,389,495 39,524,509 53,914,004 - Total liabilities 27,007,130 44,753,339 71,760,469 51,144 Net Assets Invested in capital assets - Net of related debt 75,963,401 46,507, ,470,513 - Restricted for: Roads 3,105,827-3,105,827 - Postemployment benefits 673, ,655 - Debt service 5,926,226-5,926,226 - Sanitation 9,031,726-9,031,726 - County drains 728, ,712 - Bond ordinance requirements 310,968 1,458,254 1,769,222 - Community development 124, ,604 - Drug law enforcement 928, ,641 - Library 117, ,700 - Unrestricted 10,376,101 23,901,674 34,277, ,964 Total net assets $ 107,287,561 $ 71,867,040 $ 179,154,601 $ 893,964 The Notes to Financial Statements are an Integral Part of this Statement. 11

29 Expenses Charges for Services Program Revenue Operating Grants and Contributions Capital Grants and Contributions Functions/Programs Primary government: Governmental activities: General government $ 8,085,370 $ 1,745,423 $ 91,448 $ 2,330 Public safety 22,672,349 2,309, , ,023 Public works 12,859, ,665 3,357, ,778 Community and economic development 2,359,218 1,562, , ,266 Recreation and culture 6,263,728 3,130, , ,504 Interest on long-term debt 391, Total governmental activities 52,631,218 9,071,843 5,058,257 1,384,901 Business-type activities - Water and sewer 18,367,200 18,977,513-42,555 Total primary government $ 70,998,418 $ 28,049,356 $ 5,058,257 $ 1,427,456 Component units: Tax Increment Finance Authority $ 269,481 $ - $ - $ - Corridor Improvement Authority Total component units $ 270,456 $ - $ - $ - General revenue: Property taxes State-shared revenue (unrestricted) Investment income Cable franchise fees (unrestricted) Other miscellaneous income Total general revenue Special item - Return of program income Transfers Change in Net Assets Net Assets - Beginning of year Net Assets - End of year The Notes to Financial Statements are an Integral Part of this Statement. 12

30 Statement of Activities Year Ended June 30, 2012 Net (Expense) Revenue and Changes in Net Assets Primary Government Governmental Activities Business-type Activities Total Component Units $ (6,246,169) $ - $ (6,246,169) $ - (19,670,160) - (19,670,160) - (8,285,843) - (8,285,843) - 215, ,873 - (2,738,914) - (2,738,914) - (391,004) - (391,004) - (37,116,217) - (37,116,217) , ,868 - (37,116,217) 652,868 (36,463,349) (269,481) (975) (270,456) 30,280,929-30,280, ,706 4,852,875-4,852, ,762 81, ,089 3,927 1,232,644-1,232, , ,058-37,142,268 81,327 37,223, ,633 (456,278) - (456,278) - (2,969,999) 2,969, (3,400,226) 3,704, , , ,687,787 68,162, ,850, ,787 $ 107,287,561 $ 71,867,040 $ 179,154,601 $ 893,964 13

31 Governmental Funds Balance Sheet June 30, 2012 Debt Service - Major Streets Local Streets SEMSD Clean Nonmajor General Fund Fund Fund Water Initiative Funds Total Assets Cash and investments (Note 3) $ 26,968,826 $ 1,619,796 $ 1,103,266 $ 6,196,363 $ 3,168,556 $ 39,056,807 Receivables - Net: Property taxes 165, ,212 Special assessments 139,266-7, ,272 Accrued interest 38,611 2,315 1,582 8,868 6,566 57,942 Other 846,008 18,861 19, ,442 Due from other governmental units 1,159, , ,093 82, ,511 2,087,214 Due from component units 28, ,333 Due from other funds (Note 4) 191,004-18,103-17, ,924 Prepaid items and other assets 675,329 64,073 7, ,521 Assets held for resale 181, , ,311 Restricted assets (Note 7) ,411,301 2,411,301 Total assets $ 30,393,213 $ 2,103,399 $ 1,311,742 $ 6,287,266 $ 5,964,659 $ 46,060,279 Liabilities and Fund Balances Liabilities Accounts payable $ 1,140,345 $ 104,586 $ 170,133 $ 66,279 $ 117,076 $ 1,598,419 Due to other governmental units 891,503-28, ,873 Due to other funds (Note 4) 17, , , ,725 Accrued and other liabilities 940,056-8,012-7, ,522 Deferred revenue (Note 8) 646, ,076 15,752 28, ,540 Total liabilities 3,636, , , , ,384 4,942,079 Fund Balances Nonspendable: Assets held for resale 181, ,403 Prepaids 675,329 64,073 7, ,521 Restricted: Roads 889 1,934,069 1,070,032-2,403,344 5,408,334 Police and fire retirements 673, ,655 Debt service ,683, ,760 5,871,194 Community development ,707 30,707 Sanitation 9,031, ,031,726 HUD homes ,925 67,925 Library , ,700 Drug law enforcement , ,641 Assigned: Subsequent year's budget 2,646, ,646,534 Committees 218, ,852 Debt service ,280 39,280 Capital projects ,826,918 1,826,918 Unassigned 13,328, ,328,810 Total fund balances 26,757,198 1,998,142 1,077,151 5,683,434 5,602,275 41,118,200 Total liabilities and fund balances $ 30,393,213 $ 2,103,399 $ 1,311,742 $ 6,287,266 $ 5,964,659 $ 46,060,279 The Notes to Financial Statements are an Integral Part of this Statement. 14

32 Governmental Funds Reconciliation of the Balance Sheet to the Statement of Net Assets June 30, 2012 Fund Balance Reported in Governmental Funds $ 41,118,200 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and are not reported in the funds 78,456,932 Investments in joint ventures are not financial resources and are not reported in the funds (Note 13) 1,936,422 Amounts payable to a joint venture are not due and payable in the current period and are not reported in the funds (Note 13) (768,969) Grants and other receivables that are collected after year end, such that they are not available to pay bills outstanding as of year end, are not recognized in the funds 623,988 Bonds payable and other long-term liabilities are not due and payable in the current period and are not reported in the funds (15,137,112) Accrued interest is not due and payable in the current period and is not reported in the funds (69,025) Other payroll liabilities are payable over a long period of years and do not represent a claim on current financial resources; therefore, they are not reported as fund liabilities (257,594) Cash held by Macomb County for drain projects is not included as an asset in the governmental funds 728,712 Net other postemployment benefit obligations are not reported in the governmental funds (5,220,324) The Recreational Revenue Enterprise Fund is included as part of governmental activities 2,405,824 Internal service funds are included as part of governmental activities 3,470,507 Net Assets of Governmental Activities $ 107,287,561 The Notes to Financial Statements are an Integral Part of this Statement. 15